Published 4:00 am, Saturday, March 27, 1999

1999-03-27 04:00:00 PDT Washington -- Last January, Interpol officials at Moscow's international airport spotted two North Korean diplomats arriving from Mexico -- an unusual event because the impoverished Asian nation had little money for its diplomats to travel.

An inspection of their luggage showed the two were carrying 77 pounds of cocaine, worth about $4.5 million, which they hoped to sell in Russia.

A few months earlier, Japanese police had seized almost $100 million worth of methamphetamines aboard a North Korean cargo ship. The cargo was discovered, according to a U.S. official familiar with the case, because the containers were labeled "honey," and "officials asked themselves why a country in the midst of a massive famine would be exporting food."

Isolated diplomatically, short of resources, facing widespread famine and desperate for hard currency, North Korea is rapidly expanding state involvement in the production and distribution of heroin and methamphetamines, in addition to a host of other criminal enterprises, according to U.S. and international drug officials.

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Requests for comment by North Koreans at the United Nations were not answered. In the past, North Koreans have insisted that any criminal activities were the work of individuals, not the state.

TRAFFICKING OVERSHADOWED

U.S. concerns about North Korea's state-sponsored drug trafficking have been overshadowed by the West's preoccupation with North Korea's clandestine development of nuclear arms and its rapidly advancing missile programs.

"Everything can't be priority one or priority two or even priority four and five, you know, and narcotics is way down the list," said a U.S. official.

U.S. officials admit their information is sketchy because Washington has no diplomatic ties with Pyongyang, and must rely heavily on South Korean intelligence services. But there is anecdotal evidence, including the sudden jump in the past three years of arrests of North Korean diplomats and the accounts of defectors who consistently say the illegal activities are carried out with the direct authorization of the North Korean government.

"The state is the mafia," said James Lilley, former U.S. ambassador to South Korea, adding that North Koreans routinely use their diplomatic pouches, immune to search, to ship drugs and other contraband.

A February report by the Congressional Research Service said "conservative estimates" of North Korea's criminal activity, which is "carefully targeted to meet specific needs," show it generated about $86 million in 1997 -- $71 million from drugs and $15 million from counterfeiting.

DIPLOMATS TOLD TO RAISE CASH

U.S. intelligence officials said that about five years ago, the government created the Korean Workers Party Bureau 39, a special office to generate hard currency that is under the direct control of North Korean leader Kim Jong Il.

At about the same time, officials said, North Korea shut down many of its embassies because of the financial crisis, and the remaining diplomats overseas were told they would have to start earning enough hard currency to pay the cost of operating their diplomatic posts as well as remit some home.

"So these poor guys are sitting there trying to spin gold from straw," said one official. "I suspect that is where you get some of the drug dealing."

U.S. officials said much of the bureau money is channeled through the Kaesong Bank for hard- currency purchases abroad.

CONGRESS WANTS REPORT ON POLICY

The growing concern that North Korea is using drug trafficking proceeds to fund its weapons program and maintain its military, the fifth largest in the world, is leading many in Congress to question the U.S. policy toward North Korea. At the behest of Congress, the Clinton administration asked former defense secretary William Perry late last year to review all aspects of the policy.

On March 5, senior House Republicans, including international relations committee chairman Benjamin Gilman of New York and Majority Leader Dick Armey of Texas, wrote to Perry, saying: "Your report needs to clearly highlight the reality that North Korea has entered the illicit narcotic production and trafficking business, especially the production of opium and methamphetamine."

Senators Charles Grassley, R-Iowa, and Jesse Helms, R-N.C., last year demanded that the State Department include North Korea in its annual worldwide drug trafficking report.

This year's report, released March 1, did just that, concluding that in North Korea, "estimates of the area under poppy cultivation range from 10,378 acres to 17,300 acres and estimates of opium production range from 30 metric tons to 44 metric tons annually. This would yield from 3 to 4.5 metric tons of heroin, if all the opium were refined into heroin."

The greatest concern, according to Barry McCaffrey, the Clinton administration's drug policy director, is methamphetamine production, which requires much less expertise and fewer precursor chemicals than heroin production.